China Back Repeating The Same Mistakes Of 1500's?

[interestrateripoff]

I've been reading Charles C Mann 1493 and when he was talking about the Chinese in what is now Manila in the 1500's sounds like the Chinese now. They managed to copy European designs and sell them for less than what Spanish could produce goods for. It was cheaper to manufacture in China and ship goods to Spain and they still managed to sell for less than what you could produce the same goods for in Spain. The Chinese ended up with a pile of silver which ultimately crashed the Chinese economy although that was helped by political mismanagement.

Flash forward 500+ years and the same scenario is playing out again, this time they appear to be collecting dollars instead of silver.

So will China manage to repeat the similar mistakes to what it did 500+ years ago?

[davidg]

Interesting.

In the Roman Empire period the Romans' were shipping practically all the gold they mined to China in exchange for Silk, which they had no idea how it was produced. It crashed the empire in the West as they couldn't even pay their own defense. The eastern Roman empire made it a priority to find out how silk was produced which they eventually did in the early middle ages. The gold price in China was also suppressed but no idea what effect it had on the economy.

Edited June 25, 2013 by davidg

[The Masked Tulip]

Have you got to the bit about the silver mountain and how the believed wealth actually destroyed Spain?

[interestrateripoff]

Have you got to the bit about the silver mountain and how the believed wealth actually destroyed Spain?

Yep read how the King of Spain kept spending money he didn't have as they believed the silver would pay for it and kept going bankrupt, although I found the stat that only 2% (I think that was the figure quoted) of the silver mined was official the other 98% was smuggled away from the tax collectors!

Just finished the chapter on potato blight which was imported into Europe and the growth of pesticides in global farming.

[scepticus]

For almost the entire history of civilisation since global trade routes were well established (since early roman times), India and China have been renowned as a bottomless pit into which gold and silver fell, never to emerge again.

Never did them any favours, in the wider picture.

Probably something to do with the scale of their society and their inability to provide a reliable source of savings to their populace sufficient to meet demand.

[davidg]

India and China have been renowned as a bottomless pit into which gold and silver fell, never to emerge again.

My Grandad spent time in India during WWII and came back with a shedload of silver in the form of ornaments which he seemed to pick up for below the price of silver on the London market.

[interestrateripoff]

For almost the entire history of civilisation since global trade routes were well established (since early roman times), India and China have been renowned as a bottomless pit into which gold and silver fell, never to emerge again.

Never did them any favours, in the wider picture.

Probably something to do with the scale of their society and their inability to provide a reliable source of savings to their populace sufficient to meet demand.

So are large city of gold in China or India? Has it all been buried?

[aa3.1]

Money looks so simple to understand when you first learn about it. But the more you learn, the deeper the rabbit hole goes.

Look at how on this forum, using common sense it seems to a bright young person the goal is to save your money, take responsible levels of debt, and pay down that debt as fast as you can. Yet that strategy fails miserably time and again.

[scepticus]

My Grandad spent time in India during WWII and came back with a shedload of silver in the form of ornaments which he seemed to pick up for below the price of silver on the London market.

Anecdote.

I'll stick with the rigorously researched history!

In any case, that is part of the difference - sliver and gold in monetary form versus ornamentation.

[scepticus]

Money looks so simple to understand when you first learn about it. But the more you learn, the deeper the rabbit hole goes.

The reason for that is people view money as a fundamental thing but it isn't, in all its forms its just a record/memory of energy expenditures at various levels of temporal remove.

To understand money one must, IMO, get used to looking at how the economy operates on a matter/energy level and then see how money maps to that, not the other way about.

[mfp123]

earning lots of silver through trade wasnt the reason itself it collapsed.

just reading up on the history of it, it seems it was not the silver but money printing that caused the collapse.

paper money existed there for hundered of years before everywhere else and was successful until subsequent governments printed too much paper to fund spending which devalued the currency to a degree that people lost confidence in it.

similarly for the romans they started off with 100% silver coins to trade but didnt have enough of the stuff to pay people so starting debasing it and paying people 87% of a silver coin until eventually a coin was debased to consisting of only 0.05% silver.

so it seems the collapse of major powers has a lot in common. currencies were debased to fund spending, which undermined the economy and caused the eventual demise.

Edited June 25, 2013 by mfp123

[scepticus]

earning lots of silver through trade wasnt the reason itself it collapsed.

just reading up on the history of it, it seems it was not the silver but money printing that caused the collapse.

paper money existed there for hundered of years before everywhere else and was successful until subesequent governments printed too much paper which devalued the currency to a degree that people lost confidence in it.

similarly for the romans they started off with 100% silver coins to trade but didnt have enough of the stuff to pay people so starting debasing it and paying people 87% of a silver coin until eventually a coin was debased to consisting of only 0.05% silver.

so it seems the collapse of major powers has a lot in common. currencies were debased to fund spending, which undermined the economy and caused the eventual demise.

rubbish, india and china were sinking precious metals long before the advent of paper money in any earthly society.

http://www.amazon.co.uk/Power-Plenty-Millennium-Princeton-Economic/dp/0691143277/ref=sr_1_1?ie=UTF8&qid=1372196996&sr=8-1&keywords=power+and+plenty

[(Blizzard)]

The reason for that is people view money as a fundamental thing but it isn't, in all its forms its just a record/memory of energy expenditures at various levels of temporal remove.

To understand money one must, IMO, get used to looking at how the economy operates on a matter/energy level and then see how money maps to that, not the other way about.

Money isn't fundamental, and I agree that it obscures the real functioning of the economy, but it certainly isn't about energy and matter either.

For example, I live in the flat upstairs. You pay me £10 to look after your dog whilst you are away. Where's the flow of energy?

Money is basically just the most liquid commodity at some point in time.

The problem we have isn't really to do with money, that just hides the real transfers of real wealth. The problem with the economy is that real wealth has been transferred from the productive to the parasitical, and it has also been sent abroad.

I'm coming to the conclusion that no economic analysis really describes this situation very well, because economics is the study of markets and trade, whilst the real forces that drive the world are politics, influence and monopoly.

What we are seeing then is more a failure of democracy, and a return to feudalism, rather than a failure of capitalism.

[scepticus]

Money isn't fundamental, and I agree that it obscures the real functioning of the economy, but it certainly isn't about energy and matter either.

For example, I live in the flat upstairs. You pay me £10 to look after your dog whilst you are away. Where's the flow of energy?

Money is basically just the most liquid commodity at some point in time.

The problem we have isn't really to do with money, that just hides the real transfers of real wealth. The problem with the economy is that real wealth has been transferred from the productive to the parasitical, and it has also been sent abroad.

I'm coming to the conclusion that no economic analysis really describes this situation very well, because economics is the study of markets and trade, whilst the real forces that drive the world are politics, influence and monopoly.

What we are seeing then is more a failure of democracy, and a return to feudalism, rather than a failure of capitalism.

But paper promises are not a commodity yet they appear to be the most liquid thing given that everything including gold is liquidating to obtain them.

So, what in your view is currently the most liquid commodity and hence money?

[(Blizzard)]

But paper promises are not a commodity yet they appear to be the most liquid thing given that everything including gold is liquidating to obtain them.

So, what in your view is currently the most liquid commodity and hence money?

Paper promises are a commodity, at least in the sense I was using the word. A promise is worth something, although how much really depends.

And yes, I agree, this is the most liquid commodity.

Edited June 25, 2013 by (Blizzard)

[scepticus]

Paper promises are a commodity, at least in the sense I was using the word. A promise is worth something, although how much really depends.

And yes, I agree, this is the most liquid commodity.

You are abusing the term commodity:

"The more specific meaning of the term commodity is applied to goods only. It is used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market.[3] A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them.": Wikipedia.

Only paper promise commodities produced by the government qualify as 'most liquid' in the current circumstances, and additionally, only those of zero maturity.

My promises or your promises or indeed those of reasonably rated corporates don't qualify. Everything is selling off in favour of government promises, or government insured promises, of zero maturity.

[(Blizzard)]

You are abusing the term commodity:

"The more specific meaning of the term commodity is applied to goods only. It is used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market.[3] A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them.": Wikipedia.

Only paper promise commodities produced by the government qualify as 'most liquid' in the current circumstances, and additionally, only those of zero maturity.

My promises or your promises or indeed those of reasonably rated corporates don't qualify. Everything is selling off in favour of government promises, or government insured promises, of zero maturity.

I'm not sure what your point is here, but I am fairly sure that Dr Pedantry has started making house calls.

I think the money we use is a commodity by that definition, or perhaps a set of commodities if you want to distinguish bank deposits from cash. Even if you don't accept that I'm perfectly happy to change my statement to:

'Money is basically just the most liquidly traded thing or thingies at a given point in time'.

since it doesn't change anything.

Edited June 25, 2013 by (Blizzard)

[scepticus]

You said, "paper promises are a commodity". That is clearly not true, since your paper promises are not a commodity. Neither are mine, or microsofts or imperial tobaccos paper promises.

Only government promises are commodities, by your definition.

[mfp123]

You said, "paper promises are a commodity". That is clearly not true, since your paper promises are not a commodity. Neither are mine, or microsofts or imperial tobaccos paper promises.

Only government promises are commodities, by your definition.

his definition of a commodity is correct when it relates to money. what your describing as a commodity is just "stuff", which isnt money.

money is a store of value and a means of exchange. something that can be spent at a later date. your time, whether you are a bricklayer or a hairdresser, or a consultant is a commodity.

a commodity as youre describing i.e stuff, is not in itself money.

[(Blizzard)]

You said, "paper promises are a commodity". That is clearly not true, since your paper promises are not a commodity. Neither are mine, or microsofts or imperial tobaccos paper promises.

Only government promises are commodities, by your definition.

My promises might be a commodity, if they were traded, but they aren't. That makes them totally illiquid and so they aren't ever going to be regarded as money.

Now we're just arguing over the meaning of words, and that's pointless. My argument is simply that money isn't really that special, it's just whatever people decide to trade with. Gold, government tokens (are they even really promises? Probably not), lottery tickets, whatever. Money isn't the same as real wealth, and neither is the same as energy or matter.

Real wealth is quite a difficult thing to define, and subjective, so it's much easier to talk about money, but that's misleading because what we're really interested in is real wealth, however difficult it is to get to grips with.

The problems we have are to do with real wealth, and our inability to create it. This may be partly to do with the monetary system, and the power it gives to people who run it, but the problem is not money itself.

[interestrateripoff]

earning lots of silver through trade wasnt the reason itself it collapsed.

just reading up on the history of it, it seems it was not the silver but money printing that caused the collapse.

1493

In this book the argument was taxes in China got paid to the emperor in silver, but this was a weight of silver which was fixed, when the value of silver declined as there was more of it in circulation spending remained the same but the weight of silver didn't increase to compensate for decline in value. Hence the govt ran out of money.

To be honest it's not surprising silver collapsed in value if 98% of what was mined disappeared into the black economy. The book cites one shipwreck off the Philippines which had a manifest of something like 450000 silver coins, when divers got to the wreck 1.2m were recovered which suggests at best the cargo was only 33% legal silver.

[Fishman]

1493

In this book the argument was taxes in China got paid to the emperor in silver, but this was a weight of silver which was fixed, when the value of silver declined as there was more of it in circulation spending remained the same but the weight of silver didn't increase to compensate for decline in value. Hence the govt ran out of money.

To be honest it's not surprising silver collapsed in value if 98% of what was mined disappeared into the black economy. The book cites one shipwreck off the Philippines which had a manifest of something like 450000 silver coins, when divers got to the wreck 1.2m were recovered which suggests at best the cargo was only 33% legal silver.

Correct me if I'm wrong, but surely all the gold and silver that was nicked from The Americas in the 16th century simply devalued all the stock held in Europe ?

Or is that too simplistic ?

[interestrateripoff]

Correct me if I'm wrong, but surely all the gold and silver that was nicked from The Americas in the 16th century simply devalued all the stock held in Europe ?

Or is that too simplistic ?

That appears to be the case as economics 101 suggests.

It probably helped ensure Spain's repeated bankruptcy although at one point the Spanish King could only borrow at 40%... which sort of helped ensured default.

[Rare Bear]

Correct me if I'm wrong, but surely all the gold and silver that was nicked from The Americas in the 16th century simply devalued all the stock held in Europe ?

Or is that too simplistic ?

The view that I hold. Ties in with my fathers definition of inflation. 'Too much money chasing too few goods'.